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July 26, 2011

FT: Book Review - Everything is Obvious

The result is a profound confusion in our judgments of where we can predict the future and where we cannot. To most people, brain surgery seems unfathomably complex, while social or business problems seem relatively straightforward; such things are not rocket science, after all. But, as Watts calmly points out, rocket science itself is a perfect case of a relatively easy task: machines the size of small cars are reliably landed on distant planets, while supposedly tractable problems – such as unemployment or crime – prove persistently tricky.

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July 8, 2011 10:07 pm

Everything is Obvious

Chinese premier Wen Jiabao looked supremely confident during his visit to Europe late last month. And so he should. While the west struggles to escape the clutches of the financial crisis, China’s rise has become a byword for quiet efficiency and global ambition. Whether the focus is on plans to lay 30,000km of new railway, build 45 airports or divert 6,000bn gallons of water to the country’s parched north, western leaders can only look on enviously as China’s ruling cadre of engineers cement their reputation as the world’s new master planners.

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Yet, for all that, might China’s grand schemes still end in disaster? Duncan Watts thinks so, and has written a fascinating attack on the perils of grandiose planning in both business and politics. Watts is a research scientist at Yahoo and a pioneer of “experimental sociology”, a developing field that uses large online experiments to pick apart complex social phenomena. In Everything is Obvious: How Common Sense Fails, he argues convincingly that our overconfidence in the power of human reasoning in general leads all too often to catastrophic and avoidable errors.

Watts begins by noting the way in which individuals use common sense to fill in the gaps of a baffling world. That this is problematic seems odd initially: common sense is useful, and those who lack it seem hapless. But that, Watts thinks, is just the problem: “bad things happen not because we forget to use our common sense, but because the incredible effectiveness of common sense in solving the problems of everyday life causes us to put more faith in it than it can bear”.

This is partly because we are unaware of the myriad hidden biases that shape our decision-making. Experiments show that shoppers are more likely to buy German wine if German music is playing in the background, for instance. We process data in equally skewed ways: information that supports existing views is welcomed, while that which does not is rejected – a phenomenon known as confirmation bias. More generally, the human mind is adept at thinking up explanations for what it observes, and in turn convincing itself that these explanations must be correct.

These problems grow greater in the world of complex social and economic systems – meaning those whose outcomes are unpredictable and non-linear, and which “emerge” from the interplay of their parts. The snag is that almost everything that matters – from firms and families to political parties and whole economies – turns out to be part of just such a complex system. And it is this that leads Watts to be so deeply pessimistic about the ability of experts to predict the future, and to develop plans accordingly.

The result is a profound confusion in our judgments of where we can predict the future and where we cannot. To most people, brain surgery seems unfathomably complex, while social or business problems seem relatively straightforward; such things are not rocket science, after all. But, as Watts calmly points out, rocket science itself is a perfect case of a relatively easy task: machines the size of small cars are reliably landed on distant planets, while supposedly tractable problems – such as unemployment or crime – prove persistently tricky.

Even so, most experts and analysts (and perhaps even a few journalists) soldier on, content in the delusion that they can understand the complex chains of causality that lead to a pop song becoming a hit, or a government policy flopping or flying. In turn, it is this feeling that breeds the overconfidence that results in what Watts calls “extreme planning failures”, ranging from disastrous public housing programmes to catastrophic corporate mergers – and which could yet see China’s engineers also head towards hubris and disaster.

Everything is Obvious is engagingly written and sparkles with counter-intuitive insights. Its modesty about what can and cannot be known also compares favourably with other “big idea” books. But it is his message about planning that is especially chastening, given that the greatest challenges of the global era – from the growth of China to climate change – call more than ever for grand plans.

Watts doesn’t avoid this entirely, and has intriguing thoughts on the potential of what he calls “measure and react” strategies. The high street fashion chain Zara is one example: here managers cheerfully admit that they have little idea what customers will buy. Instead they carefully monitor sales, and use speedy supply chains to react accordingly. Drawing on his sociological background and his day job at Yahoo, Watts is also excited by the potential of internet experiments to road-test policies.

Even so, Watts’ views on the poverty of planning remain excessively fatalistic, mostly because he fails to weigh up the relative risks of action and inaction. China’s leaders will make mistakes, some of which will turn into disasters. Yet given the scale of the challenges they face, such grim outcomes are probably more likely if they sit on their hands. A better path would be to adopt the experimental techniques Watts promotes, and the modest attitude his book embodies, to lessen the risk of failure for those large-scale planning tasks that cannot be avoided. Supremely confident though he might be, it is a lesson even Wen would do well to take on board.